Service Properties Trust (SVC) 2008 Q3 法說會逐字稿

Good day, and welcome to the Hospitality Properties Trust third quarter 2008 financial results conference call. This call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.

Thank you, and good morning, everyone. Joining on today's call are John Murray, President and Mark Kleifges, Chief Financial Officer. John and Mark will make a short presentation, which will be followed by a question and answer session. Before we begin today's call I would like to read our Safe Harbor statement.

Today's conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and federal securities laws. These forward looking statements are based on HPT's present beliefs and expectations as of today, November 11th, 2008. The Company undertakes no obligation to revise or publicly release the results of any revision for the forward looking statements made in today's conference call, other than through filings with the Securities and Exchange Commission, or SEC.

In addition, this call may contain non-GAAP numbers, including funds from operations, or FFO. A reconciliation of FFO to net income is available in our supplemental package found in the Investor Relations section of the Company's website. Actual results may differ materially from those projected in forward looking statements. Additional information concerning factors that could cause those differences is contained in our forms 10-Q and 10-K filed with the SEC, and in our Q3 supplemental operating and financial data found on our website at www.hptreit.com. Investors are cautioned not to place undue reliance on any forward looking statements.

Now, I would like to turn the call over to John Murray.

Thank you, Tim. Good morning, and welcome to our third quarter 2008 earnings call.

Yesterday, HPT recorded FFO per share for the 2008 third quarter of $1.06. FFO this quarter reflects a rent deferral of $15 million, or $0.16 per share in connection with the rent deferral with TA, which we announced last quarter. Amounts deferred have been reserved due to the current uncertainty about TA's eventual ability to repay us in 2010. In addition, as noted in the second quarter, we have stopped accruing straight line rent of $3.5 million, or $0.04 per share per quarter related to the TA lease.

TA's quarterly results were also announced yesterday, and hopefully many of you listened to TA's earning call this morning. Despite the weak economic environment, TA reported its best quarterly performance since its spin-off from HPT in January 2007. Despite fuel volumes, which were down about 17% quarter-over-quarter, across the 184 comparable HPT sites, fuel gross margin increased 55%. Non-fuel revenues in gross margin declined 4.7% and 3.2%, respectively, far less than fuel volumes dropped. This may indicate that even though some customers are purchasing fuel elsewhere, they are still coming to TA and Petro travel centers for the other services.

Other property level operating expenses were flat with the 2007 quarter. As a result, in the 2008 third quarter, TA covered the rent due under its leases with HPT at both the property level and, more importantly, at the corporate adjusted EBIDTAR level, and did so by a substantial amount. There are a number of factors that led to TA's improved performance, as they discussed this morning. Among them was the success with pricing strategies aimed at maintaining acceptable fuel profit margins, the impact of greater expense control, and the steady decline on the price of fuel during the quarter.

Nonetheless, these remain challenging times for the TA and the trucking industry, due to the current economic weakness, which is causing fewer goods to be shipped. Fleets and independent truckers also continue efforts to conserve fuel. Some of you may look at TA's results this quarter and say the rent deferral agreement was unnecessary. However, as we told you last quarter, the rent deferral was not made in response to a crisis at TA. Rather, it was a proactive move to ensure they have sufficient liquidity available for the next two quarters, which are historically the weakest for trucking, and may be especially so this year due to the recessionary environment.

At September 30th, TA had approximately $144 million of cash on hand, availability under its line of credit of approximately $30 million and access to additional CapEx reimbursement of about $25 million from HPT. The rent deferral of up to $5 million per month through December 2010 should enhance TA's ability to address the liquidity risks from present market conditions, and to meet working capital needs during an extended economic slump. To sum it up, in the current economic environment it seems prudent to have a short-term mechanism to provide TA with additional liquidity if necessary.

Turning to our hotel investments, third quarter 2008 RevPAR growth averaged 0.3% across our 290 comparable hotels, driven by rate increases which rose 1.5%, and 1.2 percentage point decline in average occupancy to 74.7%. RevPAR growth was aided primarily by improvement at our Hyatt Place hotels, which increased 23.7% over renovation period comparisons in 2007. Although we are pleased that our portfolio's continued to achieve rate gains with only modest occupancy declines, we are concerned about reduced business and leisure transient demand as the economy weakens. We believe HPT's hotels are well positioned to compete in the weak economic cycle, as demonstrated at the local market level by their average RevPAR index, which has increased 4.8 percentage points for the third quarter of 2008 to 118.9. Also of course, we have been through down cycles before, and our hotels have performed well.

RevPAR performance this quarter was flat to down in most regions, with the strongest regional performance seen in our hotels in the two west central regions, driven by strong results at our hotels in Texas and at our Hyatt Place properties. Balancing these strong results were Canada and the mid-Atlantic and mountain regions, which felt the impact of reduced demand, particularly in the suburban New Jersey and Philadelphia markets, and Phoenix and Las Vegas markets respectively. Clearly, the weak economy, related lay offs and the liquidity crisis are having a negative impact.

The strongest portfolio performance came from HPT's highest place portfolio against the 2007 construction period comparison. Profit margins improved at our Hyatt Place properties from approximately 19% in the 2007 quarter to over 31% in the 2008 quarter. In addition to the strong Hyatt Place performance, our up-scale extended stay focused hotels, Residence Inn and Staybridge Suites, showed steady RevPAR growth of 2.7% and 2.6% respectively. Despite growth in total hotel revenue, operating costs increased at a greater rate, and as a result, hotel gross margins were softer by 110 basis points in the 2008 third quarter versus 2007.

However, HPT's hotel annual minimum return and rent coverage ratios have generally remained strong. Our managers continue to reduce their projections for RevPAR growth for the fourth quarter 2008 and full year 2009 as the weak economy has reduced visibility. Most are now expecting full year 2008 RevPAR growth to be flat to slightly down. Not surprisingly, economic concerns are weighing heavily on expectations for 2009. Each of our operators has implemented contingency plans in an effort to increase demand from new sources and maintain current business, while also closely monitoring and controlling costs to the extent possible without impacting the guest experience. Before I turn the call over to Mark Kleifges, I would like to remind you about our track record during the 2001-2002 hotel industry downturn, and the security features of our agreements.

All of HPT's hotel management agreements and leases require that we be paid priority returns monthly, and there are corporate guarantees or security deposits which secure the performance of our tenants and operators. The priority of our returns further align the interest of the owner, HPT and our tenants and operators. HPT's operators and tenants are not small unknown enterprises. Rather, our properties are operated by large, well known managers like Marriott, IHG, Hyatt and Carlson.

Our percentage rents and returns, which made up only about 5% of HPT's net revenue during the first nine months of 2008, may be impacted by the downturn, but we expect our minimum rents and returns will be paid without exception. We also believe it is short-sighted to meaningfully curtail capital expenditures at this point in the economic cycle. To the contrary, when business levels are reduced it is often the best time to complete capital projects. There is less guest displacement and, generally, labor and materials are at a better price. So, we intend to continue keeping our assets attractive and competitive.

I will now turn the presentation over to Mark Kleifges, our CFO.

Thanks, John.

During the 2008 third quarter, RevPAR for our hotel portfolio increased 0.3%, with increases at our Hyatt, IHG4, Residence Inn and Staybridge Suites portfolios of 23.7%, 7.2%, 2.3% and 2.3% respectively. These increases were off set by a 4.9% decline at our Kauai Marriott, a 4.4% decline at our Carlson portfolio and 3.4% decline in our Marriott Courtyard portfolio.

Hotel gross margins declined for the quarter dropping 1.1 percentage points to 43.7%. We experienced a significant increase of gross margins at our Hyatt portfolio, driven by a 9.4 point increase in average occupancy and a 7% rise in ADR. Consistent with hotel gross margins, cash flow available to pay our minimum returns and rents also declined quarter-over-quarter. Although our Hyatt portfolio turned in a strong performance with cash flow increasing approximately 105% to $6 million in the quarter, eight of our 11 hotel portfolios experienced quarter-over-quarter declines in cash flow, resulting in a 1.8% decrease in cash flow available to pay our minimum rents and returns.

Despite this small decline, rent and return coverage ratios remain strong for our hotel portfolios. On a trailing 12 month basis, only two of our operating agreements have coverage below one times at September 30th, our Marriott Kauai lease and our Hyatt management contract. As we discussed last quarter, the Kauai lease, which is subject to a Marriott guarantee, is not expected to show significant improvement until after its renovation is completed in late 2009 or early 2010. The 12 month coverage number for the Hyatt portfolio includes operating results for periods when certain of the hotels experience significant disruption due to the Hyatt Place rebranding process. We expect coverage for the Hyatt portfolio to be greater than one times for the 2008 year. Our remaining nine hotel portfolios have coverage ratios of 1.15 times to 1.56 times for the trailing 12 months.

Turning to our travel centers portfolio, TA followed a much improved second quarter with an outstanding third quarter. Cash flow available to pay rent at our 184 comparable travel centers increased $22.7 million, or 28% over the 2007 third quarter. This compares to quarter-over-quarter declines and cash flow of 33% in the fourth quarter of 2007, and 17% in the first quarter of 2008 and an increase of 6% last quarter. Property level coverage for the quarter was 1.8 times for our 145 property lease, and 1.9 times for our 40 property lease. More importantly, TA produced corporate level adjusted EBIDTAR of $89.8 million, a 46% increase over the 2007 third quarter. TA's adjusted EBIDTA coverage of cash rent at the corporate level for the quarter was two times. Adding back the $15 million rent deferral during the quarter, coverage of cash rent would have been 1.5 times.

HPT's EBIDTA in the third quarter of 2008 was $144.2 million, which is a 9.6% decline from 2007 third quarter EBIDTA of $159.5 million. This decline is attributable to the $15 million rent deferral by TA, as well as the impact of not accruing straight line rent of $3.5 million in the 2008 third quarter. Minimum returns and rents were $127.8 million in the 2008 third quarter, a 10% decrease from the 2007 third quarter. Again, this decrease resulted primarily from the $15 million rent deferral by TA.

FFO for the third quarter includes approximately $6.4 million, or $0.07 per share of additional returns and percentage rent. This compares to approximately $9.4 million, or $0.10 per share in the 2007 third quarter. We experienced quarter-over-quarter declines in additional returns at all of our managed portfolios in the third quarter, and expect this trend to continue in the fourth quarter. In October, we declared a $0.77 per share common dividend related to the third quarter. Our FFO payout ratio was 73% in the third quarter, and we generated cash flow available for distribution in the quarter sufficient to cover our common dividend.

Turning to our balance sheet and liquidity, cash and cash equivalents totaled $46.8 million at September 30th, which includes $37.5 million of cash escrowed for future improvements to our hotels. During the quarter, we made approximately $20 million of capital improvements to our hotels, and we expect to make additional improvements of between $20 million and $30 million during the remainder of 2008. HPT's debt to total capital on a book basis was approximately 50% at September 30th, and our EBIDTA to total fixed charges coverage ratio was 3.3 times in the 2008 third quarter. Our liquidity remains strong, with $343 million available under our revolving credit facility and no debt maturities until July 2010.

That concludes our prepared remarks. Operator, we are ready to take questions.

(OPERATOR INSTRUCTIONS) We'll pause for a moment to assemble our roster. (OPERATOR INSTRUCTIONS)

Our first question is from Michael Salinsky with RBC Capital Markets.

Good morning. Mark, could you touch on your capital spending plans -- the full year plans for this year, and maybe your initial thoughts on 2009 at this point?

Yes, as I said, we will probably spend around another $20 million in the fourth quarter. We are in the process right now of working with all of our operators on 2009 capital plans. So, we will be able to give you some color during next quarter's call for both total expenditures we plan to make at our hotels we plan to make next year, as well as how much of those improvements will be funded out of existing FF&E reserves versus additional funding by the Company.

Okay. How far would RevPAR have to fall next year before your dividend would come into question, essentially? Covered by cash flow, essentially?

We have weathered some pretty significant downturn. You have to remember we have large, well-capitalized operators and the payment of our rents or minimum returns doesn't have anything to do with RevPAR growth or declines. The security deposits and guarantees and well capitalized operators.

We expect that even if there is fairly significant RevPAR declines in 2009 that we will continue to be paid our rent and minimum returns -- our percentage rent and percentage returns, contingent returns may be impacted, but that should be the only impact.

That's helpful.

We don't rely on those contingent returns to pay our dividends.

Okay. Third, in terms of TA, obviously the fourth quarter and first quarter are the slow periods, do you expect them to take the full deferral again? Did they take the deferral in October?

They have taken the -- we expect that they will, through the entire fourth quarter and first quarter, continue to defer the rent under the deferral agreement. It may not be necessary, in any given month at the front end, as you probably have seen, that the price of fuel has continued to decline over the course of the month of October, but we expect that the deferral will be taken at least through the end of the first quarter.

Okay. Finally, on your exchange note, the APB 14-1 which takes affect next year, what kind of impact do you expect from that?

Let's see. If you take a look at the queue, we added some disclosure this quarter on that subject. I can share that with you if you give me a second. We put in a preliminary estimate in terms of what we think the impact of that will be, and where we are right now is we think it will be between $0.08 and $0.10 a share on an annual basis.

Great.

We will firm that up in the 10-K at year end.

That's helpful. Thank you much.

Thank you.

Our next question is from Jeff Donnelly with Wachovia Securities.

Good morning, guys. Maybe this is a different way of asking Mike's question, are you able to provide for us, either in the aggregate or maybe lease by lease, the magnitude of the RevPAR decline you can endure before the hotel leases, if you will, drop below 1.0 times lease coverage? That is not really a dividend question, it is more a lease coverage question.

I think just too many factors that go into that, Jeff. There are certain -- for instance, we know that the Kauai Marriott will be under going substantial renovation next year, so we suspect that that won't cover rent next year. There may be a ramp up period even into 2010 when that is being completed. It is possible even in 2010 that that won't cover.

Then, you need to make assumptions about the mix of how the revenue declines are driven by occupancy declines and rate declines, and how much cost the management teams are able to cut back, and it largely becomes a long list of assumptions that go behind it. It is effectively a guessing game. It is one of the reasons we structured our agreements the way we did, so that even if for a short period of time if we have less than one time's coverage, we expect that we will still be paid. We own a substantial number of assets for each of the operators who manage hotels for us.

As I said, they are well capitalized and we expect that we will be continued to be paid our returns regardless whether there is a blip below one times coverage. We had a below one times coverage before, in a number of different portfolios, and we've always continued to be paid. We expect that to continue.

Maybe there is another way of asking then, I know your crystal ball isn't clearer than anyone elses. I guess at this point, and what you are hearing for 2009 outlooks, do you anticipate, at this point, any defaults under the leases in 2009?

No.

I guess as it relates to TA, as I think you mentioned, they seem to have good results today. Do you feel there is any need at this point, or are they asking to increase concessions under their rent deferral agreement that seems to be in vogue in the financial markets these days?

No, if they ask for more, we would probably send them to the treasury department to ask, and get them online with everybody else.

Seriously, I think that there are features where they could get some of the sharers they gave to us back, if they didn't use the full rent deferral. They are cognizant of that. They are going to use every bit of the deferral that they need, but I don't think that they'll use any more than they need, at least based on where fuel prices are and where their results are through the third quarter. The expectation is that they will continue to use the rent deferral, but that they are not -- we don't expect that they will be seeking changes to that, one way or the other.

I guess, this might be one for Mark. Should we look at G&A this quarter, either in absolute dollars or as a percentage of assets, as somewhat of a run rate going forward?

No, quarter-over-quarter we were down G&A about $3 million. There is some noise in those numbers, and it has to do with the incentive fees under our advisory contract. Back in the 2007 third quarter, we recorded about $1.6 million of expense associated with those incentive fees. In the 2008 third quarter, we reversed about 1.2 of accrued incentive fees that were recorded in the first and second quarter of this year. About a $2.8 million swing that's impacting this quarter.

I think on a run rate basis, excluding the impact of incentive fees, I think a reasonable run rate is more in the $9.5 million to $9.7 million range.

One last question, John, maybe for a bit of history, can you remind me why the Marriott Kauai was carved into a single property lease. Does that make you more concerned -- I know it is just one asset, and it is under going renovation, but Hawaii is taking its slumps, and it doesn't have the benefit of the cross-collateralization with other properties in the lease arrangement.

Yes, there are a variety of factors for the reasons why we separated it out. It was a size hotel that really didn't fit well -- it was very much unlike all of the other hotels in that portfolio that it was in. It is also part of a Marriott timeshare community, and Marriott was going to be expanding that timeshare operation and building Ritz residences, and changing the layout of the golf courses, and there was going to be a substantial amount of work going on at the resort around that property, and we thought we would be better off with a lease that had CPI based rent adjustments in it and we would be counting on revenue increases.

Anyway, that's why we amended the lease -- amended the management contract to pull Kauai out and put it on a lease by itself. But, I'd say the most important thing there is that we have a full guarantee for the duration of the lease term from Marriott International, so I can't imagine that we won't be paid the rent there.

It is tied to CPI, instead of actual operating performance?

The increases are, yes.

Ok, great. Thanks.

(OPERATOR INSTRUCTIONS) Our next question is from William Truelove with UBS.

Hey, let me first say, I'm glad that we can get a timeshare discussion in this conference call as well.

So, you mentioned the additional rents above the minimum were 5% of the revenues, was is that year to date -- what is that in terms of FFO per share, and can you tell us what it was on a full year basis in 2007? Thanks.

This is Mark. I don't have the per share numbers in front of me, but I can give you the gross dollars -- year to date gross dollars is $25.3 million and that -- I'm sorry, that was $25.3 million in 2007, $21.3 million this year. So, about a $4 million or 16% year-over-year decline.

So it is $21.3 million year to date for 2008, versus $25.3 million in 2007 ?

Right. It is roughly about a $0.04 -- just doing the math in my head here -- about a $0.04 per share decline year-over-year.

Thanks much. That did it. Appreciate it.

Ok.

Our next question is from Nap Overton with Morgan Keegan.

Good morning. A couple of my questions have been addressed, but kind of an open ended question. The market is clearly pricing in a disastrous scenario with the yield on your common stock. The market clearly doesn't believe that that is a sustainable dividend.

I wonder whether you might just want to comment on your view of a real disaster scenario over the next 18 months?

I would rather tell you that our board looks at our dividend every quarter, and our cash flow this quarter covered our dividend. We expect it will cover in the fourth quarter, and as we look out even into disaster scenarios, we still believe our operators will continue to pay the rent and returns due to us, and that being the case, we will continue to be able to pay our dividends.

So, I don't lose any sleep at night, and frankly I never have at HPT, worrying about whether our dividends are going to be paid. I don't see that happening in the next 18 months either.

Okay. Then if we look at -- if you go back and look at post 9/11, do I recall correctly that there were defaults under two of your operating agreements during those ensuing years?

That's correct. We had two portfolios actually that were with Wyndham and one portfolio with Prime where we had defaults, and we were able to work through those situations.

I think one of misconceptions which may explain where our dividend yield is today, is that there are some people that think if there is a less than one times coverage and somehow a default ensues from there, that all of that rent and returns go away. We had coverage that was less than one times and we had default, but we were able to replace where Wyndham was managing Summerfield Suites for us, and we rebranded those to Staybridge Suites hotels with IHG, and we were able to do so at fairly favorable -- with a fairly favorable structure and with a much stronger operator. The 12 Wyndham Garden hotels have been rebranded as Raddison or Country Inn Suite hotels managed by Carlson. We have a fairly substantial guarantee from them. They are doing a good job operating those properties for us.

In the case of Prime's default, eventually, after a couple of changes, Hyatt brought that brand, assumed the management contract that we had in place with Prime and has converted the majority of those properties, 22 so far, to Hyatt Place hotels which have been a great story for our portfolio this year. So, I think that the few negative blips that occurred in that very challenging period have been turned into much better relationships, much improved relationships than existed prior to those defaults and, in the meantime, we never had to change our dividend.

Okay. Then on the travel centers lease, kind of hypothetically, what do you think would trigger a potential decision? I know it is not in the plans of the Company now, but a potential judgment to permanently change that lease, as opposed to a rent deferral agreement, just change lease all together with a new rent payment at the lower deferral amount that the Company is paying in cash right now, or to readjust that lease again? What would trigger that event, and what time frame would that occur in?

Based on the results that they announced today, I think probably both TA and HPT shareholders are wondering why we entered into that deferral agreement in the first place, now that they have seen the third quarter results. I think we will get through these next couple of quarters, see how the economy is doing and then TA's management team will decide whether they want to continue to seek deferrals.

Based on what we see today, and what we know today, we are not contemplating any permanent adjustments or further changes to the agreement that we already have in place.

Okay. Thanks a lot.

Thank you.

Our next question is from Michael O'Brien with Sun Capital Advisors.

Hey guys. Just a real quick question about TA, and this might have been answered on their earnings call, so forgive me, I did not listen to that.

Given the drop in fuel helping their operations, is there anything that they can do -- if fuel rises, obviously that will sort of put them in dire states again. Is there anything they can do to mitigate the price of fuel or hedge against it? Anything like that? I wonder what the scenario would look like if we didn't have a significant drop in the price of oil.

Well, I think that's probably a question that is better addressed at TA, quite frankly, but I would say that rapidly increasing oil and diesel prices without any abatement creates a very challenging environment for TA. We saw that earlier this year and in 2007.

In the current economic environment, it is hard to imagine that prices are going to spike back up the way that they did. So, I don't believe that TA has substantial hedging programs today and I don't believe that they are working on that, or expected to start that in the future. I think they are focused on doing a good job with their operations and maintaining margins. I think they've done a good job of that, so far.

Given that, do you have any concept of what -- this may be an unfair question, I apologize, do you have any concept of what their quarter would have looked like had we not seen such a precipitous decline in the price of oil?

I think someone asked the question on the call this morning, and they weren't able to quantify the split about what was related to cost cutting, and what was related to their efforts to better manage margins, and what was related to the drop. We are pretty sure all three of those impacted it, but we can't distinguish how much was from either.

Thanks.

Our next question is from Dennis O'Neal with Stern Agee.

Yes, good morning. Question on -- FFO are funds from operation, is that the most important factor or figure in determining whether you can pay the dividend?

We look at cash flow. We look at it after FF&E. It's an important measure. I think it's more important than net-income.

Yes, that's what I figured. That's why I was asking.

Cash flow is the most important.

What was cash flow per share? I didn't see that on the release. I was looking for it.

It is not disclosed in there.

That's why I didn't see it then. Why isn't it disclosed?

Cash flow per share is really not a typical -- there are all these rules about non-GAAP financial measures.

Okay.

Cash flow per share isn't one of them. You can obviously go to the statement of cash flows that is in both of our supplemental, as well as our 10-Q, and see the type of cash flow that -- through the first nine months of the year, we have generated $260 million of cash flow from operations.

Right, ok, we can figure it out that way. Somebody asked about RevPAR, and you said we have rents and minimum returns. Do your minimum rents and minimum returns pretty much cover the dividend?

Yes, they do.

Ok. Let's think positive about travel centers. Let's think the other way, instead of being doom and gloom. We will come out of this sooner or later. When do you think they could pay back the rents that have been deferred?

I think it is too early to tell. At present, we are reserving the amounts that are deferred, because we are not sure of that. If we were, or if we had a reasonable basis for thinking otherwise, we would tell everybody.

Ok, thanks.

Our next question is from James Howard with JB Howard Investment Company.

Good morning. I wonder if it would make sense for your board to purchase some of your shares. Wouldn't that be a good investment for you, given the current dividend yield?

In the present market conditions, we have about, I think we said earlier, $340 million of availability under our credit facility, and right now we are holding onto that capacity, monitoring where the economy is going and how it is impacting our existing investments. There is a fairly limited amount of transaction activity out in the marketplace, and near term we are not expecting to be investing any of our capital resources in real estate acquisitions. At the same time, if we were to change course in that regard, we would also evaluate whether it would be better to buy back shares than to buy real estate. But, at the present time, we are preserving our capital, not reducing our (inaudible). Certainly it would be a compelling consideration once we decide to begin investing again.

Our next question is from William Thomas with Thomas Income Investment.

Good morning.

Good morning.

You have already talked about the dividend, and it appears that going forward, that the dividend is as secure as most these days.

Better.

It is my feeling that what is most important is the attitude toward the dividend, just like a coach's attitude toward whether or not he is going to win the game. The attitude toward the dividend, if you could speak to that by any of the key people here in the conference, about the attitude towards the dividend, I would appreciate it. And if you could also maybe mention what you think fair market value would be. I guess you would take a look at your NAV, but if you could put something -- some kind of a guesstimate as to what you feel that fair market value would be if it wasn't such a psychological market, and controlled by people including analysts who don't understand, as you have indicated, who don't understand how the dividend is covered, I would certainly appreciate it.

I think actions speak louder than words. We have never reduced our dividends. We have increased it 18 times. We have declared the dividends for the third quarter. So, I think that the coaches and team here feel pretty strongly about our dividend.

I don't, on the other hand, feel comfortable commenting on fair market value. We believe that our yield is way too high and our share price is too low. There is better understanding of how our operations work, hopefully those come more in line. In terms of the dividend, our board looks at it every quarter and, like I said, it has never been cut. It has been raised 18 times. That's where the mind set is.

Thank you.

Our next question is from David Tannehill with Morgan Asset Management.

Good morning. I had a question about the dividend as well, but from a different angle.

It looks like your yield is about 33%. Market is not giving you credit for it. In all likelihood, the market is not going to give anybody credit for their dividends for the foreseeable future. Why not cut it in half? I calculate that would save you about $145 million a year as additional capital caution, and then at some later date, when the markets return, you can start raising it again and your stock would probably reflect it.

I mean, our board considers a lot of different things in setting the dividend each quarter. The opportunity to conserve cash is one of those considerations, maintaining REIT status is another one, and certainly -- I don't believe that we could do what you are suggesting and still be a REIT.

Anyway, the board considers that and to date they haven't gone in that direction. I don't expect them to.

Thank you.

Our next question is from Charles Hoffman with Hoff Invesco.

Yes. Along the same lines as the prior questioner, do you have opportunities to buy back some of your debt at a significant enough discount to warrant using a deferred dividend or a slashed dividend using the proceeds of that to achieve a long-term benefit for the Company?

Our debt does trade, and so there are opportunities to repurchase -- as I mentioned earlier on the share repurchase call, we are not currently planning to use our existing availability in this challenging market time to buy in capital that is already out there. It is possible that we will consider that for debt or equity securities in the future when the current malaise in the marketplace seems to be going away. At the present time we are not considering that.

Ok, thank you.

That concludes our question and answer session. I would like to turn the call back to Mr. John Murray.

Thank you all very much for joining us today. We look forward to hopefully seeing some of you at the NARI annual convention next week, and we hope you have a nice day. Thank you.

We thank you for your participation on today's call, and have a wonderful day.